The city's budget has been "precariously balanced," said City Manager Gary Brown, with a projected revised $33.5 million 2012-13 fiscal year budget and five-year outlook unanimously approved by City Council Wednesday.
Finance Director Michael McGrane said the budget has been balanced in part thanks to a one-time transfer of redevelopment agency (RDA) funds and by dipping into general fund reserves.
He said the budget reflects the city's attempt to reshape its administrative infrastructure and modified labor agreements approved since the adoption of the budget last year.
With $17.6 million in general fund operating costs, McGrane said the city made difficult choices in a financial scenario that is constantly changing.
Operating costs may appear to have increased in some city departments, he said, but this represents an increase in general fund spending to fill a hole left by the elimination of redevelopment funds.
"In the past, redevelopment paid part of the cost and wages of staff in these departments," he said. "What you are seeing is the impact of RDA going away."
About one in four city employees salaries were paid through redevelopment funds.
McGrane said last minute changes include the consolidation of the Tidelands maintenance supervision duties, retaining a maintenance worker for graffiti removal, but the city still needs to continue to look at ways to balance costs and expenses in the future.
In looking at the five-year projections, McGrane said that the San Diego County Sheriff's Department contract and retirement costs may result in an $857,500 general fund shortfall by the 2016-17 fiscal year.
New revenue may come in the form of fee increases, hotel taxes and increased growth, but that money is expected to fill only a small portion of increased expenses, he said.
Mayor Jim Janney said the city could not keep up with the sheriff's projected increase in costs. He said council "needs to come to grips with what the city does not have—revenue."
"It is ludicrous," he said. "This is not a very rosy picture. In fact, it is really ugly. Everything increases around us except for our revenues."
Councilman Jim King said that with fewer officers he wondered .
"This is so disproportional to any other thing I see on the budget," he said. "It leads me to believe that we are not considering this amenity on what our specific needs and requirements are."
McGrane said the sheriff negotiatates a multi-city contract and it is the largest expenditure in the city's yearly budget. Sheriff costs increase annually for cost of living increase, he said.
King said he understands law enforcement and public safety is an absolute necessity, but that with the constant negotiating of contracts in this economy he does not understand the continuous rise in costs.
"It rubs me wrong," he said. "I find this a little bit egregious. I am really not very happy about it."
Councilman Ed Spriggs said that despite disliking the current arrangement that this city has to move forward in finding sources of revenue to cover it.
"There's just no other choice, it's there," he said. "It's inevitable, just like the retirement cost. These are fixed costs that just keep going up."
Spriggs said the city's challenge is to look at mid and long-term ways to increase property value, the use of commercial space and the attraction of visitors.
"The elimination of redevelopment has wiped out our source and means of land and property tax base improvement, but also a major source of salary support for city and staff," he said. "We have to revisit how we balance quality of life versus growth in Imperial Beach."
In other line items questioned by Spriggs beginning in the 2014-2015 fiscal year (vacation rentals, further restructuring and a decrease in Sheriff positions), McGrane said these items are only examples of how much revenue and savings will be needed to cover the expediential rising costs.
"It is not that staff is recommending vacation rentals or sheriff reductions," he said. "It is giving you a view of the seriousness of the city's five-year outlook. We are not out of the woods yet. We are going to have to constantly revisit the budget."
Brown said council has a workshop scheduled for July 11. A panel of people including, developers, economists, multi-housing and business people that know how to bring in growth and help council develop a stronger long-range plan.
Councilwoman Lorie Bragg asked McGrane about a San Diego UT article in April that said IB is among cities with the highest reserves in the county.
At the time IB was 7th on the list with $10.3 million, or 54 percent general fund reserve. Dipping into the reserves, staff projects for FY-2012-13 a beginning reserve balance of $9.5 million and ending balance of $9.1 million.
McGrane said there is no "one size fits all" answer to reserve accounts. He said with the city's limited tax revenues and property taxes, past city councils were cautious in their spending and proactive in building reserves in case of emergency needs, such as filling in the current budget deficit.
He said the city needs the reserves because it has no way of having large amounts of revenue come back into the city within one year.
"With a net operating budget around $17 million, you have about half a year operational ability for emergency use," he said.
Bragg asked if the city's reserves were proportionally out of line in withholding too much, but said she believed that council was on the right track.
McGrane said with RDA funding going away, the city has taken major hits.
"You have enough reserves to fund things that may blow up or other significant changes that increase your level of costs," he said.
Spriggs asked if the estimation of additional revenues saved were an accurate view of what the city will actually see.
McGrane said in the case of the Recreation and Park Maintenance funds, the city drastically cut expenses in half with reduction of hours, operation, staffing hours and increase of park recreational fees.
Projections of savings are $105,475 and an increase of $9,000 in recreational fees .
Spriggs said he previously had concerns about the city's profile with the elimination of fireworks and public relations contract equaling $45,000 in cuts.
"At this point I concede that we have get down to balancing the budget," he said.
Fourth of July fireworks will proceed this year, but next year the decision is "up in the air" depending on the state of the city budget at that time. Other ways to finance an Independence Day fireworks show may be sought. The Port of San Diego currently covers half of Big Bay Boom costs.
The following documents are attached to this story:
2012-2013 Revised Budget
Original 2012-13 Budget
Reserve Funds by Agency
June 20, 2012 City Council Agenda Packet